The Living Wage Foundation has announced the new UK national and London hourly rates for the Living Wage: a voluntary rate providing an income that enables people to lead a dignified life and to meet the cost of living. This is higher than the National Living Wage: an hourly rate that UK employers must pay by law, which is linked to a percentage of median workers’ pay. The real Living Wage is increasing to £10.90 in the UK (a £1 an hour rise) and £11.95 in London (a 90p an hour rise) as the cost-of-living rises.
So, who pays the voluntary Living Wage and why? The CIPD’s summer Labour Market Outlook (LMO) surveyed 2,000 organisations and found that 29% are accredited Living Wage employers, with a further 10% planning to become one. An additional 37% pay the Living Wage but aren’t accredited and have no plans to do so, while the rest (24%) pay an hourly rate that’s less than the Living Wage.
Overall, larger organisations (those with 250 or more people) are more likely to be either accredited (41%) or seeking accreditation (12%), while small or medium-sized organisations (those with fewer than 250 staff) are more likely to be either paying a rate equivalent to, or greater than, the Living Wage (47%) or paying less than this rate (33%). This picture is similar if we just focus on the private sector, with large firms more likely to be accredited, or have plans to, and small and medium-sized companies more likely to either pay at or above the Living Wage, or not pay this rate.
Why pay the Living Wage?
The most common reasons for becoming accredited are:
- because it’s the fair/right thing to do (43%)
- to improve employee financial wellbeing (22%)
- because the market rate for jobs at the organisation already meet or exceed the Living Wage (21%)
- to improve the brand (20%), and
- to enhance employee engagement (18%).
Despite talk of the growth of ethical consumers and attention to Environmental, Social and Governance (ESG) issues, only 6% cited external pressures as the reason to become accredited.
For unaccredited organisations that nonetheless pay at or above the Living Wage, the reasons for paying this rate are similar. And, when asked why they haven’t sought accreditation, the main reason given was that there has been no external or internal pressure to do so.
Our research finds only 22% of accredited Living Wage employers chose to do so to improve employee financial wellbeing and only 15% to tackle in-work poverty. For those seeking accreditation these figures were higher (33% and 21% respectively). This likely reflects the rapid increase in the cost of living since the start of 2022 that is now manifesting in a cost-of-living crisis. But while inflation is rising for employees, it’s also rising for their employers, requiring organisations to seek productivity gains to absorb higher costs.
Going further
Despite around three-quarters of organisations paying equivalent to the Living Wage, or higher, this is still falling short. Some employees will struggle to earn a liveable income if they’re unable to work enough hours. Employers who are able to offer more hours can follow these simple measures to help to ensure that those who want to work more can:
- Ensure line managers clearly communicate to all employees any opportunities to work more hours.
- Establish processes to ensure everyone has a fair chance to put themselves forward for extra hours – don’t rely on informal communication channels that depend on managers making assumptions about who may want the extra hours.
- Offer as many flexible working options as possible, so people can fit in around their other commitments.
- Establish a right to request more stable or predictable hours to give individuals the confidence to request changes to their working arrangements.
- If people are on zero-hours working arrangements, ensure that these match their working preferences wherever possible.
Flexible working, in-work progression, and employee financial wellbeing support are also important. You can get more information and guidance on this from the CIPD’s in-work poverty hub.
Importance of a financial wellbeing policy
We recommend employers bring all this activity together under a financial wellbeing policy. The CIPD’s Reward Management Survey finds that most employees feel it’s important that their current (59%) and future (65%) employer has a policy to support and improve their financial wellbeing. In the current tight labour market and against the cost-of-living crisis, employers with such a policy will find it easier to recruit and retain employees.
Communication of such a policy will improve awareness and appreciation. The Reward Management Survey found that those who are covered by a policy are more likely to:
- know what they need to do to get a pay rise
- be satisfied with their employee benefits package
- say their pay is enough to help them save for retirement
- feel in control of their finances, and
- feel comfortable asking for help from their employer if they have money problems.
They are also more likely to say that their employer has told them:
- what benefits are on offer
- how to get those benefits, and
- how these could be useful.
So, while paying an hourly wage that matches or exceeds the Living Wage is important, on its own it might not be sufficient to guarantee financial wellbeing. Enough paid hours, flexible working, in-work progression opportunities, and financial wellbeing benefits are also important. As is bringing these elements together in a policy and then communicating it to staff.
